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Mortgage for Holiday Let

Do you need a holiday home mortgage for yourself, or a buy-to-holiday-let mortgage to let the property? We specialise in mortgages for holiday lets, holiday homes, mortgages for second homes, and mortgages for Airbnb. Below we outline some key information on buying a holiday home or holiday let with a mortgage.

Getting a Mortgage for Holiday Let – UK Only

The difficulty when seeking a holiday, or second home mortgage is not finding a lender, the majority of mortgage lenders will offer second home mortgages. The difficulty is finding a lender that will offer you a buy-to-holiday-let mortgage on terms that suit you. This is particularly the case if you are seeking to let the property during the course of the year to generate income. In this case, you will need a holiday let mortgage.

Mortgage for Holiday Let criteria – UK

Airbnb buy to holiday let mortgage

The majority of holiday let mortgage lenders will allow you to use Airbnb to let your property. Some mortgage lenders will allow this only if you use a management company. Some will not allow Air BnB to be used at all. Check with your buy-to-holiday-let mortgage broker.

Minimum Income for a buy-to-holiday-let mortgage

There are around two dozen mortgage lenders currently offering buy-to-holiday-let mortgages. Most will have a minimum (non-property) income requirement for borrowers. In these cases, you may be asked to prove earned or pension income of anywhere between £25,000 and £40,000 per annum depending on the lender.

Own Residency

The majority of holiday-let property owners will want to make use of the property themselves at some point during the year. Buy to holiday let mortgage providers will limit the number of days that you can stay in your holiday let. A typical allowed residency period is 60 to 90 days per annum. Note however that a number of buy-to-holiday-let mortgage lenders do not allow you to reside in the property at all.

Loan to Value

The typical maximum loan-to-value for a buy-to-holiday-let mortgage is 75%. Note, however, that your borrowing may be limited by affordability from reaching this level (see below).

If you do not have a cash deposit it is fairly common when buying a second home to raise deposit funds from your existing home. This is acceptable to most mortgage lenders, subject to affordability.

Of course, if you have cash already to go towards the purchase of your second home, this makes the process easier.

Mortgage for Holiday Let Affordability

The most common way for buy-to-holiday-let mortgage lenders to calculate maximum borrowing on a loan is through potential rental income. Since the property is likely to be let at different rental rates at different times of year, this needs to be taken into account by the Lenders.

Mortgage lenders will typically look at the low, medium and high season rates for your holiday let calculating an average of the three. They will then submit a proportion of this income into their affordability calculation. This varies on the mortgage lender but can typically be 30 weeks’ income. The holiday let affordability is then calculated from the rental income average.

Mortgage for Holiday Let Affordability Example

For this example, we have assumed that a holiday home will let for £350 per week in the low-season, £450 per week in the mid-season, and £650 per week in the high-season. Buy-to-holiday-let mortgage lenders will average these three seasonal rates at £467 per week and multiply this by 30 weeks, equating to £14,000 income per year.

The Lender will typically want that rental income to cover the holiday-let mortgage interest with some spare margin. As a result, the lender may use a nominal interest rate of 7.5% (higher than you pay) and look for borrowing to cover 130% of that figure.

In this example the maximum borrowing would be £143,500 (7.5% of £143,500 X 130% = £14,000)

Holiday Let income and income tax

If you already own a buy-to-let property you may find the income tax on your rental income leaves you with very little profit. The good news is that there are special taxation classes for holiday lets where tax arrangements are more attractive.

If your holiday home is classified as a furnished holiday let (FHL), you can deduct the cost of your mortgage from your profit before paying income tax. This is distinct from the situation with buy-to-let property where you cannot deduct your mortgage costs directly from the profit, instead claiming a 20% mortgage interest tax credit.

To qualify as a furnished holiday let, your property must be furnished and located within the UK. It must be available to let for at least 210 days a year, with bookings for at least half of that period (105 days). This leaves you as the owner with use of the property for a maximum of 155 days a year.

The above information should not be considered taxation advice, it is for information only – always speak to your Accountant before making any decisions.

Insuring your Holiday Let

Your buy-to-holiday-let mortgage lender will want to ensure that the property is adequately insured as they’re using it as security against their lending. Ordinary buildings insurance is not suitable in most cases due to the limited time you may be using your second home. Make sure you deal with a specialist broker to get an appropriate policy that is satisfactory to your mortgage lender and also meets your own needs in full.

Types of Holiday Home

Our Lenders are interested in bricks-and-mortar, solid construction Holiday Homes as security – they are not interested in providing buy-to-holiday=let mortgages for:

  • Timber Cabins
  • Boats
  • Caravans and Park Homes
  • Timeshares

All of these types of assets need specialist lending channels, and we do not assist with funding for them.

Restricted Use

Lenders are not interested in properties with restricted use, such as those holiday homes that can only be lived in at certain times of the year, or those properties that can only be sold to locals.